Krugman: Bernanke choice is "just weird"

[BurtWorm]

He sees it as a sign of Bush's weakness--a very good sign indeed.

<You must pay the rent>

http://select.nytimes.com/2005/10/28/opinion/28krugman.html?pagewanted=print


Bernanke and the Bubble
By PAUL KRUGMAN
By Bush administration standards, the choice of Ben Bernanke to succeed Alan Greenspan as chairman of the Federal Reserve was just weird.

For one thing, Mr. Bernanke is actually an expert in monetary policy, as opposed to, say, Arabian horses.

...

Last but not least, Mr. Bernanke has no personal ties to the Bush family. It's hard to imagine him doing something indictable to support his masters. It's even hard to imagine him doing what Mr. Greenspan did: throwing his prestige as Fed chairman behind irresponsible tax cuts.

All of this raises a frightening prospect. Has President Bush been so damaged by scandals and public disapproval that he has no choice but to appoint qualified, principled people to important positions?


...

[yodermon]

1. kick for krugman

:kick:

[section321]

2. I'm very happy with this choice... which makes me wonder...

This has to be the first Bush administration decision/policy where I actually feel they got it right. Bernanke is an outstanding economist (he wrote the book I used in college) and has shown a talent for discussing monetary policy in the way that the Fed needs to.

I just don't get it... is this a case where even a broken clock is right twice a day?

[GrpCaptMandrake]

5. I was taken a little aback

when I read that Bernanke had said there is no "housing bubble." Housing prices have risen something like 25% in the past year. That's not normal. It's also not sustainable, either economically, ethically, or environmentally.

I've heard it said that the Fed Chairman is actually the most important man in America. If so, wouldn't that be constitutionally repugnant?

[elsiesummers]

15. Well - if we consumers lose faith in housing it will crash...

I think it's just as likely that Bernanke thinks there is a housing bubble but that it may not pop dramatically but instead simply fizzle if fear doesn't set in.

So, I suppose it would be irresponsible to say there is a housing bubble, thus instigating a crash if he believes a soft landing is possible if fear doesn't set in.

He must not be planning on raising interest rates too much if he thinks he can prevent a bubble pop. The Fed is notorious for going too far with interest rates in either direction.

I've read a lot of speculation that the final rate raising will be the last meeting - January, or before January. So rates go up a quarter point twice then hold on Greenspan's third and final meeting. Apparently Bernanke is less of an inflation hawk than some others - so this would also fit that scenario.

I don't think Greenspan says what he thinks but instead offers plausible explanations for what he does and suggests things that might cause market forces to react in the direction he wants, for example, when he suggested that ARMS were a good thing trying to keep the refi asset liquification going. The effect he wanted was for enough consumers to refinance to keep the economy afloat since earnings were stagnant.

Anyway - I don't think you can rely on these guys to tell the truth - instead you have to look at what effect their words will induce.

Bernanke's printing press line was another one - you know Greenspan had him say that so people wouldn't start acting like deflation was here - hording cash/not spending while waiting for prices to drop.

The "no housing bubble here folks, move on" approach is deliberately designed to prevent a mega crash.

[WCGreen]

24. There is no national housing market.....

like there was a national Dot.com bubble...

Housing markets are local...

Places where housing has gone from purchasing a home to where it is speculative in nature and you will find a bubble...

[IronLionZion]

31. What makes you think it's a "bubble"

Housing is necessary for people and real estate is a traditionally stable market.

Sure the prices are inflated now since everyone is buying so it will equalize later on, but it won't crash like the dot com bubble because real estate doesn't work like that.

[cally]

32. There are credible real estate economists who've

argued both sides of this. Many do not believe there is a national housing bubble. When housing prices fall in local markets, some argue that it won't have national repercussions. Bernanke may be correct on this. (Disclaimer: I'm not advocating this side. I'm just pointing out that it's a credible argument.)

[KharmaTrain]

17. As Long As It's A Boooosh Pick It's Bad...

I thought that, too about Bernanke...until I talked to some economic friend and did a little reading about him myself. He seems to be a very pragmatic money manager type...understanding the balance of free market vs. government/bank regulation/manipulation. I'll be interested in seeing more.

Greenspan's pandering to the very rich in recent years has been disasterous. He gave cover to this regime for that self-destructive tax cuts that have created defecits that will require someone someday soon to increase those taxes or this government will come to a halt under its own largess...they won't even be able to borrow enough.

While I'll read of economists and money managers wanting more government oversight...the days of high flying Wall Street hucksterism is done for now...but would a new Fed chief have the clout to push back against a decade of Repugnican deregulation that's destroyed so much of our manufacturing and service sector.

[babylonsister]

3. Wow, the blivet got one right? I haven't heard lots of

negative on Bernanke, so I hope this is right!

[Fridays Child]

4. Monetary policy pretty much confuses the hell outta me.

But it's good to hear that people who know about these things are pleased with the nomination.

[punpirate]

6. Krugman may be stumping a bit for...

... a fellow Princeton professor, but Bernanke has already been chairing Bush's Council of Economic Advisors, suggesting that he's a bit more political than this article implies.

And, in his tenure on that panel, he hasn't encouraged his fellows to come out against further tax cuts.

Bernanke will be less verbally obscure than Greenspin, but I doubt he'll be saying anything radically different.

[countmyvote4real]

7. Plus, he's not married to NBC's Andrea Mitchell. n/t

[babylonsister]

8. Thanks for your analysis; I hope you're right, ,

but also hope Bernanke has a brighter and younger take on the world we live in compared to what Greenspan allowed. I also hope he can change his mind should that be necessary, like tomorrow or the next day.:eyes: Or a week from now!

[Julius Civitatus]

18. I agree. Bernanke has even said some bizarre things recently

In addition to been a Bush cheerleader and true believer of Bush's trickle-down tax-cut magic, Bernanke has recently said things that have puzzled other economists:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=1880323&mesg_id=1880323

In the face of overwhelming evidence, Bernanke said earlier this week that there is no such thing as a housing bubble, claiming that the outrageous real estate prices are the consequence of huge growth in jobs and salaries. All economic indicators tell us the opposite: job growth has been stagnant in the Bush years, and mainly reduced to low paying jobs; Americans have lost purchase power, and salaries have not grown according to prices. And housing prices are way out of control in most areas of the country. What is he smoking, really?

It's quite strange he would make such a statement when data and facts can easily contradict him. I don't have a good feeling about this guy. Maybe Krugman should enlighten us about what this guy is actually saying.

[AngryAmish]

29. As said above, I think you are misinterpreting his statement

Real estate is a local market. Prices hikes in San Francisco do not causes prices in Topeka to rise. He said that there are some markets that are overheated (NY, Miami, San Fran and others) and probably bubble-like.

There is a test that one can do to see if there is a housing bubble. That is when rents are much cheaper than mortgages (when taxes are added but interest deduction is subtracted).

Using that test most markets are not bubbly.

The number of households are growing all the time. They need more housing. It bids up the price of housing very much near where the jobs are or in very desireable places. Plus, people are making lots of equity on housing so they can roll it over into a more expensive place if they can afford a bigger mortgage.

[autorank]

9. I think BushCo got the "word"...do this or else.

This is one position you can't fool around with. Greenspan has been pathetic, he's enabled the worst of the Bush scheme. Wall Street doesn't like clowns in key financial positions, say what you want about the profit motive.

If this guy passes the Krugman test, my God, we should rejoice.

I think that BushCo got a few calls, the name was put forward, and he was told to nominate him, period. No questions asked.

Nice to see a silent coup brewing from the financial center. It's about time.

Somebody there is finally waking up and realizing a nation of serfs, a Wal-Mart Nation, is unacceptable for an advance economy.

[MazeRat7]

10. Oh you know it... I can almost hear that conversation now.....

What got me was his only "downside" is that he never actually worked on Wall street. However, given his credentials, I personally would think of that as a "step down".

Yeah... bottom line, I think he is a good pick. How they hell it came from this administration is amazing...unless (as you said) there was some serious come to Jeebus meetings.....

MZr7

[belle]

11. Maybe he just ran out of pals.

[Hardrada]

12. And out of polls

and Poles!

[BanzaiBonnie]

13. This may not be a good choice...

From Money And Markets newsletter:


"Bernake seems to believe that money-printing is a great tool, not a great danger. His own words:

"The U.S. Government has a technology, called a printing press. ... The Fed could even implement what is essentially the classic textbook policy of dropping freshly printed money from a helicopter. ...

"A little parable may prove useful ... suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost ... Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the ... printing press (or, today, its electronic equivalent) allows it to produce as many U.S. dollars as it wishes at essentially no cost."

The implication ...

While Bernake may pay lip service to inflation fighting, his real agenda seems to be to push for more economic growth -- one reason stock investors celebrated his appointment yesterday. That means inflation-fighting takes second fiddle.

Worse ...

For the first time in history, we may have a Federal Reserve Chairman who seems to believe that running the money printing presses is a viable solution to our nation's economic problems and that a vastly devalued dollar is an acceptable result."

[rucky]

14. time to switch to Euros n/t

[AngryAmish]

30. Euros down 10% v. dollar in 05

[Julius Civitatus]

19. Scary

[no_hypocrisy]

20. Memories of Germans during the Weimar Republic with wheelbarrows

of useless Deutschmarks going to buy a stick of butter . . .

[On the Road]

22. If You're a Progressive, Though, That's Good News

Consider the source of that article.

The Fed has historically been run by banking types who pursue zero inflation even at the cost of low growth and high unemployment. During the Great Depression they actually decreased the money supply, thus making the depression longer and deeper.

That policy protects the assets of the rich. The poor, on the other hand, need jobs and growth, even if the money is worth less than it was last year.

William Greider's book on the Fed, Secrets of the Temple , ends with a plea for a more accommodating monetary policy of the type that Bernanke is accused of supporting.

Personally, I'm not sure whether the policy differences from Greenspan will be all that noticeable. But the differences that do exist will probably be positive.

[patcox2]

26. Galbraith also believes inflation is the friend of the debtor.

Inflation erodes the value of accumulated assets. In other words, it shrinks the assets of those who live off capital. Thats why, to Greenspan, inflation is the greatest evil of all, becuase it bites the Palm Beach country club set hardest.

But uniform inflation, which inflates both costs and wages, is good good good for the average working person whose debts outnumber his or her assets. Inflation decreases the value of debt.

Since the US government has so much debt, the interests of the US Government may be coming into alignment with the interests of the working people, when it comes to monetary policy. The US may just have to use inflation to monetize the debt held by the Chinese and other foreign investors, even if it means all of our mortgages will be decreased in real value as well.

We have plenty of inflation right now, but we hide it with bogus CPI calculations, in fact, most of what is being reported as GNP growth is actually just inflation. We are doing some very shady enron-accounting things to keep our currency attractive to internationa investors.

[The Backlash Cometh]

16. kick

[Commie Pinko Dirtbag]

21. Freeper heads exploding THIS WAY:

http://www.freerepublic.com/focus/f-news/1508791/posts

[BurtWorm]

25. Hee hee hee...

:rofl:

(dumb freeper bastids!)

[ComerPerro]

23. Well, no ties that we know of

[jwirr]

27. Okay, think about who owns bushie. The money people!

This is the first time he has been faced with appointing someone to insure their futures. He did not select this guy. Wall Street and the lending institutes and the bankers did. It is in their best interest the the Fed is run successfully. The other nominations he has made were for positions that worked with "we the people?" and bushie doesn't care what happens to the middle class and poor.

[MsTryska]

28. Well people with Riches and Power like preserving their

Capital.


I'm not surprised he took this appointment seriously.

[Mist]

33. I agree with Autorank and jwirr--no way did * make a competent pick! nt